Nigeria’s Small and Medium Enterprises (SMEs) must be committed to transparency, proper record keeping, and disciplined financial behaviour to aid their access to credit in a rather tightened liquidity environment, according to Olusegun Sonowo, a Lagos-based senior banking executive.
“For small and medium-sized enterprises (SMEs), one of the biggest barriers to accessing credit is poor record-keeping. Many businesses only start fixing their books when they’re ready to seek a loan, but banks look at history, not just current statements,” Somowo said recently on BusinessDay’s TV.
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“Banks lend out depositors’ money, not their own, so they can’t take unnecessary risks. If SMEs maintain proper records and show consistent financial behavior, banks will be more willing to support them.”
Africa’s most populous nation is witnessing its strictest credit tightening conditions in at least a decade, with an interest rate at 27 percent, one of the highest globally, and a cash reserve ratio, a metric that allows banks to lend out money or otherwise, at 45 percent.
That’s squeezing the appetite to give loans out to small firms that make up about 96 percent of all businesses and nearly half of the nation’s GDP, a condition that is slowing employment and economic growth in a country grappling with rising joblessness.
Somowo said while the “credit environment is undeniably tight,” options still exist for businesses, including private lending and venture capital for innovative or high-growth businesses; cooperatives and savings groups, which are especially helpful for micro and small businesses.
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Others are infrastructure credit guarantees, through institutions like InfraCredit, which support long-term projects in energy, transport, and housing, while family and friends’ funding or personal savings to bootstrap a business before approaching banks can also be a viable alternative.
To have a healthier credit ecosystem, the banking executive recommended that the government continue creating targeted, low-interest funds for key sectors like agriculture, real estate, and manufacturing. Sonowo also stressed the need for credit literacy, as many borrowers see loans as “national cake”, a pattern that deters commercial lenders from lending to small businesses.
He also advised that entrepreneurs should build a savings base before seeking loans, emphasising that a strong savings culture reduces overdependence on credit and builds financial resilience.